DCIT, Bangalore V. Sanyo LSI Technology India Pvt. Ltd., Bangalore

ITA 786/BANG/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2055 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 05-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JACINTA ZIMIK VASHAI
• Assessee Lawyers: MADHUKAR D
• Keywords: Services rendered outside India
• Section: 143(3); 10B; 143(1); 143(2)

Judgement Text

ITA NO.786/B /09 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO.786/BANG/2009 ASSESSMENT YEAR : 2005-06 THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE 12(3), BANGALORE. : APPELLANT VS. SANYO LSI TECHNOLOGY INDIA PVT. LTD., UNIT-3, LEVEL-8, DISCOVERER BLOCK, INTERNATIONAL TECHNOLOGY PARK, WHITEFIELD ROAD, BANGALORE 560 066. : RESPONDENT APPELLANT BY : SMT. JACINTA ZIMIK VASHAI RESPONDENT BY : SHRI MADHUKAR D. O R D E R PER GEORGE GEORGE K, JUDICIAL MEMBER THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(APPEALS)-V, BANGLAORE DATED 18.5.09. 2. THE EFFECTIVE GROUND RAISED IN THIS APPEAL READS AS FOLLOWS : THE CIT(A) ERRED IN DIRECTING THE AO TO EXCLUDE THE EXPENDITURE INCURRED IN FOREIGN CURRENCY TOWARDS TELECOMMUNICATION TRAVEL, PROJECT RELATED ITA NO./786/B/09 PAGE 2 OF 8 EXPENSES, COMPUTER SOFTWARE WRITTEN OFF, OTHER EXPENSES ATTRIBUTABLE TO THE DELIVERY OF SOFTWARE OUTSIDE INDIA., ETC., FROM THE TOTAL TURNOVER FOR T HE PURPOSES OF COMPUTATION OF DEDUCTION U/S 10A OF THE IT ACT, 1961. 3. THE BRIEF FACTS ARE ASSESSEE-RESPONDENT IS A COM PANY ENGAGED IN THE BUSINESS OF DESIGN AND DEVELOPMENT OF INTEGRATE D CHIPS AND CODING OF EMBEDDED SOFTWARE. IT FILED ITS RETURN OF INCOME F OR THE A.Y. 2006-06 ON 30.10.2005 DECLARING AN INCOME OF RS.27,54,550. TH E RETURN WAS PROCESSED UNDER SECTION 143(1) AND INTIMATION WAS I SSUED TO THE ASSESSEE. SUBSEQUENTLY THE CASE WAS TAKEN UP FOR SCRUTINY BY ISSUE OF NOTICE U/S. 143(2) AND VARIOUS DETAILS AND INFORMATION WAS CALL ED FOR. THE ASSESSING OFFICER PASSED AN ORDER U/S. 143(3) DATED 17.10.200 8 BY RECOMPUTING THE DEDUCTION CLAIMED BY THE ASSESSEE UNDER SECTION 10A OF THE ACT, BY REDUCING THE FOLLOWING AMOUNTS FROM THE EXPORT TURN OVER OF THE ASSESSEE COMPANY. - TELECOMMUNICATION CHARGES OF RS.11,90,199. - TRAVEL EXPENSES AMOUNTING TO RS.66,94,916 - TRAINING AND PROJECT RELATED EXPENSES OF RS. 23, 75,699. - COMPUTER SOFTWARE WRITTEN OFF OF RS.9,54,820 - OTHER EXPENSES OF RS.3,28,445. HOWEVER, THE SAME HAS NOT BEEN REDUCED FROM THE TOT AL TURNOVER. THUS ASSESSEE CLAIM OF DEDUCTION U/S10A OF ACT AMOUNTING TO RS.3,07,34,986/- WAS REDUCED TO RS.2,79,92,505/- AND EXCESS DEDUCTIO N U/S 10A OF ITA NO./786/B/09 PAGE 3 OF 8 RS.27,42,482/- WAS ADDED BACK AND ASSESSMENT WAS C OMPLETED DETERMINING THE TOTAL INCOME OF ASSESSEE AT RS.59,97,032/-. 4. AGGRIEVED BY THE ASSESSEE PREFERRED AN APPEAL BE FORE THE CIT(APPEALS). THE CIT(APPEALS) ALLOWED THE APPEAL I N FAVOUR OF THE ASSESSEE VIDE HIS ORDER DATED 18.5.2009 DIRECTING T HE AO TO EXCLUDE THE EXPENDITURE INCURRED TOWARDS FREIGHT, TELECOMMUNICA TION CHARGES ETC. BY THE ASSESSEE BOTH FROM EXPORT TURNOVER AND TOTAL TU RNOVER FOR THE PURPOSES OF DEDUCTION U/S. 10A. AGGRIEVED BY THIS ORDER OF THE CIT(APPEALS), THE REVENUE IS IN APPEAL BEFORE US. 5. THE LEARNED AR AT THE VERY OUTSET SUBMITTED, THE MATTER IS COVERED BY VARIOUS DECISIONS OF THE TRIBUNAL INCLUDING THE SPECIAL BENCH DECISION OF TRIBUNAL IN THE CASE OF ITO VS. M/S SAK SOFT LTD.,( 2009) 313 ITR (AT) 353 (CHENNAI)(SB). THE LEARNED DR DID NOT CONTROVERT T HE STATEMENT OF THE LEARNED AR. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THE ISSUE IN QUESTION IS COVERED I N FAVOUR OF THE ASSESSEE BY VARIOUS DECISIONS OF THE TRIBUNAL. IN ITO VS. M /S SAK SOFT LTD.,(2009) 313 ITR (AT) 353 (CHENNAI)(SB), THE ASSESSEE ENGAGE D IN THE BUSINESS OF EXPORTING COMPUTER SOFTWARE CLAIMED DEDUCTION U/S. 10B OF THE ACT. THE AO IN THE ASSESSMENT U/S. 143(3) REDUCED THE EXPEND ITURE INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICE S OUTSIDE INDIA, FROM THE ITA NO./786/B/09 PAGE 4 OF 8 EXPORT TURNOVER WITHOUT CORRESPONDING REDUCTION FRO M THE TOTAL TURNOVER, THEREBY REDUCING THE DEDUCTION CLAIMED BY THE ASSES SEE U/S. 10B OF THE ACT. IN THE LIGHT OF ABOVE FACTS, SPECIAL BENCH O F THE TRIBUNAL HELD, THUS, WE HOLD THAT FOR THE PURPOSE OF APPLYING THE FORM ULA UNDER SUB-SEC.(4) OF SEC. 10B, THE FREIGHT, TELECOM CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY O F ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE IND IA OR THE EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICE OUTSIDE INDIA ARE T O BE EXCLUDED BOTH FROM THE EXPORT TURNOVER AND FROM THE TOTAL TURNOVER, WHICH ARE THE NUMERATOR AND DENOMINATOR RESPECTIVELY IN THE FORMULA. THE APPEA LS FILED BY THE DEPARTMENT ARE THUS DISMISSED. 7. ALL THOUGH, THE ORDER OF THE SPECIAL BENCH (SUPR A) WAS IN THE CONTEXT OF SECTION 10B OF THE ACT, THE RATIO LAID DOWN THE REIN APPLIES TO SECTION 10A OF THE ACT ALSO, AS THE PROVISIONS OF SECTIONS 10A AND 10B ARE IDENTICAL ON ALL MATERIAL ASPECTS. MORE PARTICULARLY, BOTH THE SECTIONS DEFINE ONLY EXPORT TURNOVER BUT NOT TOTAL TURNOVER AND SUB-SECTION (4) OF BOTH THE SECTIONS PRESCRIBE AN IDENTICAL FORMULA FOR COMPUTING THE EX PORT PROFITS. 8. FURTHER IN THE CASE OF M/S. TATA ELEXSI LIMITED V. ACIT (ITA NO.315/BANG/2006), THE HONBLE BANGALORE TRIBUNAL H ELD THAT FOR THE COMPUTATION OF DEDUCTION U/S 10A OF THE ACT, IF CER TAIN EXPENSES ARE TO BE EXCLUDED FROM THE EXPORT TURNOVER, THE SAME WOULD A LSO NEED TO BE EXCLUDED FROM THE TOTAL TURNOVER. ITA NO./786/B/09 PAGE 5 OF 8 THE HONBLE TRIBUNAL HELD THAT THE FORMULA PRESCRIBED FOR COMPUTING THE DEDUCTION U/D 10A IS THE SAME AS PRESCRIBED IN SEC. 80HHE. THE FORMULA PROVIDES FOR A DEDUCTION OF PROFITS FROM THE BUSINESS IN THE RATIO OF EXPORT TURNOVER AS COMPARED TO THE TOTAL TURNOVER. SECTION 10A HAS INCORPORATED IN ENTIRELY THE PHILOSOPHY OF SEC. 80HHE. THE DEFINITION OF THE TERMS COMPUTER SOFTWARE AND CONVERTIBLE FOREIGN EXCHANGE IN SEC. 10A ARE THE SAME AS IN SEC. 80HHE. HOWEVER, FROM OUT OF THE THREE TERMS RELEVANT FOR APPLYING THE FORMULA, SEC. 10A DEFINES ONLY ONE TERM NAMELY EXPERT TURNOVER. THE OTHER TWO TERMS PROFITS OF THE BUSINESS AND TOTAL TURNOVER ARE NOT DEFINED. SINCE THE SECTION PROCEEDS BROADLY ON LINE SIMILAR TO SEC. 80HHE IN THE ABSENCE OF THE DEFINITION OF ANY TERM IN SEC. 10A, ONE COULD REFER TO THE DEFINITION OF A SIMILAR TERM IN SEC. 80HHE. THUS, THE TERM TOTAL TURNOVER FOR SEC. 10A PURPOSES, SHOULD BE THE SAME AS UNDERSTOOD FOR THE PURPOSE OF SEC. 80HHE THE TERM TOTAL TURNOVER NO DOUBT IS NOT DEFINED IN SEC. 10A. HOWEVER, THE TERM TOTAL TURNOVER WOULD BE AN ENLARGEMENT OF THE TERM EXPERT TURNOVER. IN OTHER WORDS, THE SUM TOTAL EXPORT TURNOVER AND DOMESTIC TURNOVER WOULD CONSTITUTE TOTAL TURNOVER. THE FORMULA FOR COMPUTATION OF THE DEDUCTION U/S 10A, WHEN RE- STATED IN THE ABOVE MANNER, WOULD BE AS UNDER : PROFITS OF THE BUSINESS X EXP ORT TURNOVER EXPORT TUR NOVER + DOMESTIC TURNOVER ITA NO./786/B/09 PAGE 6 OF 8 THE TERM EXPORT TURNOVER WOULD THEN BE A COMPONENT OR PART OF THE DENOMINATOR, THE OTHER COMPONENT BEING THE DOMESTIC TURNOVER. IN OTHER WORDS, TO THE EXTENT OF EXPORT TURNOVER THERE WOULD BE A COMMONALITY BETWEEN THE NUMERATOR AND DENOMINATOR OF THE FORMULA. IN VIEW OF THE COMMONALITY, THE UNDERSTANDING SHOULD ALSO BE THE SAME. IN OTHER WORDS, IF THE EXPORT TURNOVER IN THE NUMERATOR IS TO BE ARRIVED AT AFTER CERTAIN EXPENSES, THE SAME SHOULD ALSO BE EXCLUDED IN COMPUTING THE TOTAL TURNOVER IN THE DENOMINATOR. THOUGH THERE IS NO DEFINITION OF THE TERM TOTAL TURNOVER IN SEC. 10A, THERE IS ALSO NOTHING IN THE SAID SECTION TO MANDATE THAT WHAT IS EXCLUDED FROM THE NUMERATOR (EXPORT TURNOVER) WOULD NEVERTHELESS FROM PART OF THE DENOMINATOR. ONE WOULD HAVE TO APPLY CONSISTENT STANDARDS IN UNDERSTANDING AND APPLYING A TERM, PARTICULARLY WHEN, SUCH TERM, VIZ EXPORT TURNOVER HAS AN INDEPENDENT FUNCTION AND AT THE SAME TIME A PART OF A LARGER TERM VIZ TOTAL TURNOVER. THUS, IF SOME EXPENSES, FOR ANY REASON ARE EXCLUDED IN ARRIVING AT THE EXPORT TURNOVER THE SAME SHOULD BE REDUCED FROM TOTAL TURNOVER ALSO. THE HONBLE TRIBUNAL ALSO PLACED RELIANCE ON THE FO LLOWING CASES : 1. CIT VS. SUDARSHAN CHEMICALS INDUSTRIES LTD., 245 ITR 769, BOM. 2. CIT VS. CHLORIDE INDIA LTD., 256 ITR 625, CAL. ITA NO./786/B/09 PAGE 7 OF 8 3. CIT VS. BHARAT EARTH MOVERS LTD., 268 ITR 232, KAR. 4. CIT VS. LAKSHMI MACHINE WORKS, 290 ITR 667, SC. 5. CIT VS. TRANS LOTUS TRAVEL PVT. LTD., 290 ITR 1, DEL. AFTER AN ANALYSIS OF THE ABOVE STATED CASES THE, HO NBLE TRIBUNAL HELD THAT THEREFORE, FROM THE AFORESAID DISCUSSIONS AND THE DECISIONS RENDERED BY VARIOUS HIGH COURTS WE ARE OF THE VIEW THAT THE ASSESSEE SHOULD SUCCEED IN THE ALTERNATIVE SUBMISSION MADE. ACCORDINGLY, WE DIRECT THE AO TO EXCLUDE THE EXPENDITURE INCURRED IN FOREIGN CURRENCY BY THE ASSESSEE FROM THE TOTAL TURNOVER. IT IS ORDERED ACCORDINGLY.. 9. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION O F SPECIAL BENCH CITED SUPRA, AND THE DECISION OF THE CO-ORDINATE BENCH DE CISION OF BANGALORE TRIBUNAL IN CASE OF M/S TATA ELAXI LTD. VS. CIT (IT A NO.315/BANG/06), WE HOLD CIT(A) IS JUSTIFIED IN EXCLUDING THE EXPENDIT URE INCURRED TOWARDS FREIGHT, TELECOMMUNICATION CHARGES ETC. BY COMPANY FROM BOTH EXPORT TURNOVER AND TOTAL TURNOVER FOR THE PURPOSES OF DED UCTION U/S 10A OF THE ACT. ITA NO./786/B/09 PAGE 8 OF 8 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 23RD DAY OF DECEMBER, 2009. SD/- SD/- (A. MOHAN ALANKAMONY ) (GEORGE GEORGE K.) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 23RD DECEMBER, 2009. VMS COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.